December 2008 Portfolio Review and FY 2008 Year-End Summary

December 2008 was a very quiet month in terms of corporate activity as none of my companies announced any corporate developments or updates. Of course, the quiet was balanced by the continued turmoil in the financial markets and economy, which has threatened to blow up into the biggest financial crisis since the Great Depression. Japan, Germany, USA, Hong Kong and Singapore are now officially in recession, and many countries may be set to follow. Even giants like India and China are likely to report muted growth for 2009, way below originally projected targets, as the global financial maelstrom blows all over the world.

In terms of bailouts, the latest is by way of a capital injection of about US$5 billion into GMAC to ensure the auto-maker has enough liquidity to operate at least for the next 3 months. The term “bailout” is probably the most popular word for 2008 and has become almost synonymous with the current recession and economic malaise. Rumours are rife that the next wave of companies to ask for bailouts may be real estate companies, as sales of homes fall to new lows amidst the worst housing crisis USA has experienced since the 1930’s.

Amazingly, we have not even started talking about potential collapses of even more banks, as the global financial landscape is irreversibly changed. With more writedowns expected for credit card and student loans in the coming months, perhaps the crisis is still far from over ? With massive liquidity injections from the Fed and other central banks around the world, this has helped to prop up ailing sections of the economy for now. Whether these measures are sufficient to provide a fiscal boost remain to be seen. In Singapore, the Government has plans to boost infrastructure and construction spending by bringing forward deferred projects so as to ensure constant demand, and to ensure unemployment does not surge too high.

It’s been one piece of bad news after another, to add to the almost endless barrage of about 10 consecutive months of terrible, pessimistic news. Just flip open the nearest newspaper and be greeted by more doom and gloom, with doomsayers predicting anything from a total collapse in the economy to dire predictions of a Second Great Depression. So it’s no wonder that my general mood is that of extreme pessimism as I too have been affected by all this doom and gloom. Of course, this is the perfect environment to be purchasing shares of solid companies and part of my brain knows this, therefore I am trying to detach my objective brain from my emotional one. It’s not easy but in order to prosper in 4 to 5 years time, it has to be done.

The only significant update was Ezra’s AGM which I had already summarized in a previous post. Other than this, there is almost nothing to report for each of my companies. Therefore, I will not be doing a summary by company until the next month-end review in January 2009, as Ezra, FSL Trust and Suntec REIT should be releasing their results in the following month.

Portfolio Comments – December 2008

December 2008 saw a period of relative calm and stability in stock markets, which were devoid of wild swings and volatile periods. My portfolio improved from a total loss % of 34.5% as at end-November 2008 to 25.0% as at end-December 2008. Part of this loss was offset by additional dividend from Boustead.

There were no further purchases made this month either as market prices of the companies I am eyeing did not fall to sufficiently attractive levels to warrant purchases. I am also building up more cash reserves in view of the deepening recession and the threat of job cuts, pay freezes and pay cuts.

Portfolio Review for Financial Year 2008

During the entire year of 2008, I had made no sales of shares at all. Since Mr. Market was content to go on a manic-depressive roller-coaster ride, it made more sense to purchase from him rather than sell to him. A summary of purchases made for 2008 are as follows:-

i) January 2008 – Purchase of First Ship Lease Trust
ii) July 2008 – Purchase of more Pacific Andes
iii) September 2008 – Purchase of more China Fishery, also purchased Tat Hong
iv) October 2008 – Purchases of more Ezra, Swiber, China Fishery, Boustead and Tat Hong

A total of S$67.5K was pumped in to make the following purchases, with the effect of increasing my cost from S$58.3K (as at end-December 2007) to S$125.8K (as at end-December 2008). As a result of the global financial crisis causing severe depression of market prices, the year ended with a -33.5% unrealized loss to portfolio. This was partially offset by total cumulative dividend gains of S$10.7K, which resulted in total unrealized loss of -25%.

During 2008, total dividends received amounted to about S$6.5K. Taking this amount as a % of total cost as at year-end 2008, the dividend yield is approximately 5.16%, which arguably is still much better than leaving your money in a bank account or in fixed deposits ! My expectations for dividends in 2009 is somewhat tempered though, as companies are very likely to retain more cash as a result of the global financial crisis. Hence, I have factored in a 50% reduction in dividends received, for a total yield of about 2.58% for 2009 (still much better than a bank account !). Moving forward, dividends are expected to continue to form a critical role in providing passive income and for improving the overall performance of my portfolio.

My role as an investor is to continue to seek investments in solid companies at a margin of safety, for the long-term; and I will adhere to my value investing philosophy as we move into a possibly even more turbulent 2009.

My next portfolio review will be on Friday, January 30, 2009 after market close.

Wishing all readers a very Happy New Year and may 2009 bring good health, good fortune and greater prosperity !